WES share price in focus
Founded in 1914, Wesfarmers is a diverse Australian congregation in Perth. Its operations include retail, chemical, fertilizer, industrial and safety brands and products in Australia and New Zealand.
Wesfarmers is often compared to publicly listed private equity firms. It has a long history of buying businesses, leveraging their cash flow, reinvesting in growth and eventually selling them at a premium. A notable example is the Coles Group, which it bought in 2007 and spun off in 2018. However, the biggest contributor to the company’s operating profit (by a long shot) is Bunnings, Australia’s #1 hardware and home improvement business. Wesfarmers began buying parcels of Bunnings in 1987, eventually acquiring the final 52 percent in 1994 for $594 million.
Wesfarmers has long been considered a leading blue-chip stock on the ASX and is known for paying consistent dividends. Other well-known brands under the Wesfarmers umbrella include Blackwoods, Commit, Target, OfficeWorks, and Priceline Pharmacy.
ASX Consumer Discretionary Share Appeal
S&P/ASX200 Consumer Discretionary Index (ASX: XDJ) is back 5.54% Compared to the broader ASX 200 at 5.25% per annum over the past 5 years. The consumer discretionary sector covers a wide range of goods and services, so it can be difficult to compare companies within this group. However, there are a few things you may want to consider when investing in a consumer discretionary company like WES.
time
Consumer discretionary companies typically perform best when interest rates are low. Just think about it – when rates are low, you’re more likely to go out and buy those ‘toys’ or things you may not really need, but definitely want. It could be new tech, travel, or your power tools—it all falls into this category.
Despite the current high interest rate environment, WES has still managed to grow earnings by 9.2% per year over the past three years.
profit
The returns you receive may vary with the current economic environment, but historically discretionary shares of many major ASX customers have been reliable dividend payers.
WES offers a current dividend yield of 2.4% and an average of 3.4% over the past 5 years.
familiarity
We are often advised to invest in what we know. Consumer discretionary stocks may be a good fit at this point, as these are companies we see on a daily basis and their business models are easy to understand. You probably have a better idea of how Wesfarmers Ltd makes more money than some niche tech company or B2B industrial company.
That doesn’t necessarily mean performance will be a good thing, but it’s certainly easier to wrap your head around when you’re starting to invest.
WES share price
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One way to get a ‘quick read’ of where the WES share price is is to study something like the dividend yield over time. Remember, the dividend yield is effectively ‘cash flow’ to the shareholder, but it can fluctuate from year to year or between payments. Currently, shares of Wesfarmers Limited have a dividend yield of about 2.2.39%, while its 5-year moving average is 3.36%. Simply put, shares of WES are trading below their historical average dividend yield.
Be careful how you interpret this information though – it could mean profits are down, or the share price is rising. In the case of WES, last year’s profit was higher than the 3-year average, so the profit continues to rise.
Rask websites offer free online investing courses, developed by analysts that explain things like discounted cash flow (DCF) and the dividend discount model (DDM). They even include free valuation spreadsheets! Both of these models would be a better way to value the WES share price.
